Stock A has a dividend yield of 8% but no capital gain. Stock B offers a...
Stock A has a dividend yield of 8% but no capital gain. Stock B offers a capital gain but no dividend. If a corporate investor in the 21% tax bracket earns the same after-tax return from the two stocks, what capital gain does B offer?
Multiple Choice
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8.29%
-
9.06%
-
6.00%
-
11.31%
Homework Answers
Answer is option B
B. 9.06%
RA= 0.08 − (0.08 × 0.50 × 0.21) = 0.0716, or 7.16%
RB = 0.0716 / (1 − 0.21) = 0.906, or 9.06%
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